On November 7, 2024, Kenya announced its decision to exit the oil import agreement with Gulf countries, citing unmet objectives and distortions in the foreign exchange (forex) market. The initial six-month deal, which was extended to December 2024, was intended to alleviate forex pressures following the depreciation of the Kenyan shilling. However, it resulted in lower oil demand and losses in the re-export market, with average monthly import volumes falling short of the agreed minimums [01fcac59].
The Treasury highlighted increased rollover risks for private sector financing as a significant concern, indicating that the deal had cost taxpayers over KSh 16 billion more than the open tender system would have [01fcac59]. Despite the Ministry of Energy's previous defense of the agreement, the ongoing economic challenges prompted a reassessment of its viability.
In a related context, Kenya's foreign exchange reserves have recently reached USD 8.491 billion (approximately KSh 1.1 trillion), reflecting a significant increase of USD 244 million from earlier this month. This growth has been attributed to heightened foreign exchange inflows and the Central Bank of Kenya's purchases of foreign currency [712ad4cb].
The recent developments in the oil import sector and forex market are critical as they come at a time when foreign portfolio investments in Kenya have surged, indicating a rebound in investor confidence. As of June 2024, these investments rose to Sh6.4 billion ($49.5 million), a stark contrast to the negative Sh32.6 billion ($233.4 million) recorded in June 2023 [f52cc208].
As Kenya navigates these economic shifts, market participants are closely monitoring the implications of the oil import deal exit on the overall forex stability and the country's economic landscape. The Nairobi Securities Exchange has also seen positive trends, with a market capitalization increase of over Sh237 billion to Sh1.676 trillion by September 2024, reflecting a favorable sentiment among investors [f52cc208].